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enfant_terrible

Two-Tier Land Value Taxation

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I'm curious, is anyone here familiar with two-tier land value taxation? If so, what are your thoughts?

For those unfamiliar, it's a form of property taxation where land is taxed proportionately higher than buildings. So for instance, a 5:1 land/building tax ratio would mean that the millage rate on land is five times higher than the millage rate on buildings. This is in contrast to the standard system of property taxation used throughout most of the United States, where a single millage rate is used to tax land and buildings the same. In fact, only 19 municipalities in the ENTIRE COUNTRY currently use this form of two-tier property taxation. Eighteen of them are in Pennsylvania, because it's the only state with extensive enabling legislation.

Proponents of the policy argue that it's an effective strategy for encouraging urban redevelopment. And if you think about, it kind of makes sense. By taxing land higher than buildings, you are removing a major disincentive to new construction and rehabilitation projects. Since buildings are typically assessed higher than land, a single tax falls proportionately higher on buildings, and a property owner may be less inclined to put a parcel of land to its "highest and best use." They may decide to hold the land and speculate. A two-tier tax significantly increases the holding costs on vacant property owners in cities and encourges them to engage those properties in a more productive capacity. Such a policy most certainly isn't appropriate for rural areas, but for struggling cities, it may be an important initiative worth considering.

Harrisburg, Pa has had the policy in effect for over two decades, and ever since they aggressively implemented it in the early eighties, the city's seen some positive results. Over the last 20 years, Harrisburg has seen more than $3.1B in new investment. In 1981 it was rated the second most distressed city in the nation. The downtown has been radically transformed since that time, and the city is increasingly becoming cited as a remarkable urban renaissance story. The city's current land:building tax ratio is 6:1. I can find the rates and post them for anyone interested.

Of course, it's difficult to sift out the effects of other policies and initiatives directed toward redevelopment during the same time of Harrisburg's renaissance. But it's interesting to note nonetheless.

I'd love to here what anyone else thinks of this.

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Its in interesting idea, I can see why it woudl be effective. The problem witht that is that you might discourage development too. You don't want to punish people for living in "X" county.

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This would be an interesting case study. Harrisburg certainly seems remarkable, but could it do the same for other defective cities like Detroit and Memphis?

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this would also seem to significantly lower taxes on multifamily units. Or maybe I'm reading this wrong.

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